Amana FS Market News

Speaking on CNBC, Atlanta Fed President Bostic said that the cancellation of the US/North Korea summit (and broader geopolitical uncertainty) is part of the downside risks to the economy. Bostic said that uncertainty has its own contribution, then we have to figure out what the policy ends up being, adding that if it turns out certain ways then business can go forward.

Adding to this, concerns of potential new tariffs on vehicle imports, Bostic said that his business contacts indicate they are inclined to wait and see what happens before acting. Regarding Fed policy, Bostic said that the FOMC is getting closer to the end of its rate hike cycle, noting that he would like to get to neutral and let the economy work.

USD/TRY: No Cure in Sight for Turkish Lira Woes; Hits Record High of 4.92

The Turkish lira (TRY) rout continued this week with USD/TRY rallying a further 3% on Wednesday, up to 4.92, with the move supposedly exacerbated by forced liquidation of long TRY/JPY positions by Japanese margin traders as stop losses were hit. Today, the currency pair (USD/TRY) managed to decline back to 4.57 mark, but still hovering near the record high levels.

According to data from the Tokyo financial exchange, Japanese margin traders held some 324k TRY-JPY contracts (as of 15 May), off a peak of 383k in mid-March, but still way above 150k contracts in mid-2017 from where positions were built in size.

This means that further unwinding is possible in the future, which could accentuate TRY weakness. However, it is likely that the TRY will consolidate somewhat in the European trading session on better liquidity. But the weakening trend should remain in place. For all practical purposes, market-based signals have for some time been pricing in levels of stress that happened to coincide with previous episodes of significant CBRT tightening, including the 2014 emergency rate hike.

But what is still missing is supportive rhetoric from government officials, including President Erdogan and his economic advisers. Yesterday, Yigit Bulut warned against talk of “financial crisis”, saying that certain media outlets were among the culprits scare-mongering, citing it as continued propaganda against Turkey following the failed military coup in July 2016. Similarly, another adviser, Cemil Ertem, last week ventured to provide an academic defence of the president’s assertion that “high inflation is the outcome of high interest rates”.

With official beliefs appearing more stubborn than was the case before, the prospect of a large emergency rate hike appears even slimmer ahead of the scheduled CBRT meeting (7 June). USD-TRY should remain well bid while TRY-RUB should maintain its downtrend. In terms of market expectations, we think a 225-300bp hike, with a promise to do more if needed, would be needed to see some recovery in the TRY.

EURUSD Trajectory Dependent on Future ECB Decisions

Expectations that the ECB may be unable to exit from its quantitative easing programme have been gaining traction as the data has remained in backward looking mode. This has consistently painted a picture of weak growth and stubbornly low core inflation. This picture should change in the coming months as the underlying growth momentum reasserts itself. Faced with a tightening labour market and higher oil prices, the ECB will end QE this year.

In Italy, it looks as though the EU will be faced with its first avowedly populist and eurosceptic government. At face value, the coalition agreement between La Lega and the Five Star Movement threatens to reignite the euro crisis and raises concerns about the sustainability of Italy’s debt position. The suggestion that the ECB should write down its holdings of Italian debt will surely reinforce the argument for the ECB to exit its asset purchase programme.

Following the recent bearishness in the market, the euro has declined to $1.18 against the dollar, while Italian bond spreads widened to more than 150bp. It is hard to be a euro bull in this kind of climate and the fact that we are in something of a data black hole at the moment, with mainly backward-looking data filling in the gaps about the weak performance in Q1, is not helping. Increasingly the outlook for the euro is becoming a binary call on whether the ECB will end its asset purchase programme this year.

Trade Negotiations Looks Better Than Last Week; BoK to Wait and See How Negotiations Develop before Hiking Rates

Ironically, the ongoing Sino-U.S. negotiations also are weighing on Korean policymakers' determination to rebalance the economy away from export-led growth. When Governor Lee made his more bearish speech last week, the focus was on China buying more goods and services from the U.S.—at the expense of Korean and Japanese exports—to help reduce its bilateral trade surplus, though the dramatic $200B reduction claims were not made until the day after.

Since then, China and the U.S. have come out with a joint statement, earlier this week, that focused on agriculture and energy goods, and China also has pledged to cut import tariffs on autos and auto parts, effective July 1. China never substantiated the reported $200B offer to the U.S., and it now seems that the plan is somewhat different, though we continue to read the tea leaves here.

If the idea is to switch supply chains for agriculture and energy goods in favour of the U.S., while offering the U.S. and all other nations easier access to Chinese markets through lowering import tariffs, then this is a win for Korea, as we've highlighted previously. Exports of autos and parts were 11.3% of total Korean exports last year, and Korea has a substantial base on which to build.

The Bank of Korea (BoK) may want to wait and see, but that idea jars with the Governor's talk of a "mission" to tackle imbalances. Admittedly, though, the Thursday speech is the most recent from the BoK, and it did reduce the probability of a hike this week. In sum, we diverge from the consensus in two ways. First, we think a May hike is more likely than the unanimous no-change consensus suggests.

Second, we always thought two hikes for this year would be too aggressive, but we reckoned the data, and critically consumer confidence, would still be strong enough in May for the BoK to get in one more hike. We still think the data will deteriorate from here. Following our own logic, if the BoK doesn’t have the stamina to hike this week, then we find it hard to see how they will hike later in the year, when the data is liable to have deteriorated further.

Where might we be wrong? The BoK could want to wait and see if the unemployment rate falls back, and to see how trade negotiations develop. If China announces further tariff reductions, as we expect, this could be enough to embolden the BoK. In addition, we reckon China will again implement stringent production curbs in winter this year. That would mean greater reliance on Korean exports, though it will also cause volatility. But this must be balanced against the likelihood that Chinese overall demand likely will weaken substantially this year. And critically, indicators of Korean consumer health look set to weaken in coming months, as confidence continues to wane.

ECB Minutes - Stay the Course but Watch Data

The ECB's April meeting minutes say that signs of a moderation in growth have not changed the expansion picture, but data until the June meeting would be carefully scrutinised. Encouraging signs of wage growth were noted.

The view was expressed that the inflation objective could be considered "close" to being satisfied but is so far insufficient. The discussion also highlighted concerns about protectionism. This doesn't appear to add much new policy information; the EUR/USD is little changed at 1.1715-20.

On the other hand, the ECB's Financial Stability Report warns that a loosening of the fiscal stance in high-debt countries could impact market sentiment. This is clearly aimed at Italy. It also cautions that vulnerabilities are building in financial markets, citing narrow risk premia and higher risk-taking.

ECB VP Constancio said it is in Italy's interest to abide by the EU fiscal rules. The spike in Italian yields is not a "huge development" but is a cause of concern. The risk of contagion is not off table but is very slight.

US’ Justice Department calls for probe into the speculated manipulation of Bitcoin prices

Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin plunged 2-9%

BTC/USD (Bitcoin): Bitcoin prices slumped to its lowest in two weeks during European session Tuesday after the United States’ Justice Department has called for a probe into the speculated manipulation of Bitcoin prices. The investigation is aimed at illegal practices that can influence prices of other digital currencies as well. At 10:20GMT, it was trading 6.07% lower at $7,384.20 on the Bitstamp exchange.

Technical Analysis Overview: The immediate support level is seen at 7,431.36, S2 at 7,198.72 and S3 at 6,627.48. Meanwhile, the first resistance is seen at 7,972.25, R2 at 8,264.62 and R3 at 8,602.13 (trend-defining level).

ETH/USD (Ethereum): The world’s second-largest cryptocurrency in terms of market cap, Ethereum, also plunged, in line with its wider peer, as investors continued to be depressed over the lack of positivity at the Consensus2018, besides, the US’ probe into price manipulation. At 10:30GMT, it was trading 9.28% lower at $562.99.

Technical Analysis Overview: The immediate support is seen at 564.58, S2 at 538.48 and S3 at 487.59 and the immediate resistance is seen at 639.01, R2 at 655.88 and R3 at 744.57 (trend-defining level).

XRP/USD (Ripple): The third most popular cryptocurrency, Ripple, also struggled to perform in the day, as a sense of thunderstorm continued to prevail across the entire cryptocurrency market, following a series of uncertainties in the digital currency market. At 10:40GMT, it was trading nearly 2.11% lower at $0.60075.

Technical Analysis Overview: The immediate support level is seen at 0.55407, S2 and S3 at 0.46083 and 0.38814 respectively. Meanwhile, the first resistance level is seen at 0.64720, R2 at 0.71650 (trend-defining level) and R3 at 0.74775.

BCH/USD (Bitcoin Cash): The bitcoin cash also followed the footsteps of its other peers, falling below the $1,000 psychological level, after again a massive sell-off took the market by storm, owing to a range of pessimism that crawled into the crypto market. At 10:50GMT, it plunged 6.50% to $976.50.

Technical Analysis Overview: Bitcoin Cash is eyeing its immediate support level seen at 968.1, S2 at 788.3 and S3 at 595.4. Meanwhile, the first resistance level is seen at 1,134.20, R2 at 1,317.30 (trend-defining level) and R3 at 1,675.70 respectively on the Kraken exchange.

LTC/USD (Litecoin): Litecoin, however, failed to overcome the previous losses and continued its streak of suffering, in line with its counterparts as investors engaged in short positions in the cryptocurrency market. At 11:00GMT, it was trading 6.55% lower at $116.99.

Technical Analysis Overview: S1 is seen at 116.15, S2 at 109.44 and S3 at 104.24 respectively. Meanwhile, the first resistance shall be targeted at 128.88, R2 at 141.27 (trend-defining level) and R3 at 153.21.

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